Tuesday, July 19, 2016

When markets
experience dramatic change, laws addressed to older business models and
technologies can distort or inhibit free market-oriented activities that are dependent
on newer models and technologies. The market distortion problem is increased
when laws left on the books are based on industrial policies favoring certain market
segments that no longer exist.

Copyright law
suffers from such market-distorting effects because many of its provisions are
based on late 20thcentury conceptions of a marketplace in which
Internet use was far less common and relied largely on slow dial-up service.
This poses significant difficulties to copyright holders seeking to protect
their property rights from infringement.

Also, certain
copyright provisions apply different types of protections or different royalty
rates to different types of services without any rational basis – instead of
equal standards. Such shortcomings in the law adversely impact copyright holders
in sound recordings by unfairly harming their ability to bargain for financial
returns in licensing their music to different music delivery services. Copyright
law needs updating to fix these distortions of the music market.

Highlighting
one particular problem, a number of high-profile music artists – ranging from
Taylor Swift to Paul McCartney to Trent Reznor – recently have leveled harsh
criticisms against YouTube for hosting copyright infringing content and for
lackluster anti-piracy efforts. Complaints have also been voiced about low
revenues received from the site.

A report
titled "How Google Fights Piracy" appears as a partial response to those
criticisms. The report touts YouTube proprietary systems for digital rights management
and for combating infringing uploads of copyrighted video and music content by
its users. It also points to a claimed $3 billion in multi-year aggregate
payments made to copyrighted content owners by YouTube for on-demand
ad-supported streaming.

By itself, perhaps
$3 billion may seem to be an impressive figure. But the shine wears off when
one considers the larger context of annual music consumption and revenues. In
2015, on-demand ad-supported music streams generated only $385 million in sales
revenues. More than 150 billion song streams generated only $227
million. These numbers fall short of the $416 million in revenues generated
that very same year by 17 million vinyl record sales.

It is true
that copyright owners in the sound recording and motion picture markets bargained
with YouTube, granting permission for streaming of copyright content in
exchange for revenues. However, copyright holders have pointed to the
prevalence of infringement on user-upload sites such as YouTube and the
inadequacy of existing copyright enforcement mechanisms. It's out of apparent necessity
to secure returns, however meager, for their creative work – rather than no
returns at all – that copyright holders consent to low rate deals with ad-based
streaming services.

Meanwhile,
copyright holders face constraints on financial returns from other music
delivery platforms. Under copyright law's compulsory licensing system,
subscription satellite and Internet radio services can transmit copyrighted
sound recordings at an artificially low rate under Copyright
Act Section 801(b). And broadcast radio stations are exempt from having to
pay any royalties to copyright holders when they air copyrighted sound
recordings.

Ultimately,
assessments of fair financial returns to copyright holders in sound recordings
relative to economic values offered by online streaming platforms should be
determined through the free market. But the rules of the market have long since
become outdated. Copyright law needs updating in a free market-oriented
direction to reflect digital age realities.

Much of copyright
law predates the rise of high-speed broadband, emergence of user-upload
streaming sites, and the eclipse of CDs by digital downloads. Last-century
copyright law supplies a backdrop in which copyright protection is uneven and
in some cases inadequate to protect against online piracy and infringement.
Copyright law must be updated to ensure that marketplace negotiations between
copyright holders and music delivery services are not so weighed down by the
threat of piracy and infringement. That also means copyright law must treat
different music and media platforms equally unless there is a rational
basis for treating them disparately.

A needed
update to copyright law should include at least three important reforms:

First, the
notice and takedown system for combating infringing Internet postings of
copyrighted content needs to be revamped. The system was established back in
1998, a time when user-uploading on streaming sites was nil. The proliferation
of those sites as well as Internet users and web addresses generally has made
the system increasingly time-consuming and costly for copyright holders to use
in obtaining prompt takedowns of infringing content. Judicial rulings have also
restricted the scope of available protections, thereby requiring copyright
holders to file numerous, repeated, webpage-specific takedown requests with
online service providers when infringement of specific copyrighted works are clearly
known to be widespread on a given online platform or website. The burdens are
especially pronounced for individual copyright holders. The notice and takedown
system should include simpler, more streamlined options for addressing such
widespread and repeat infringement.

Second, satellite
and Internet radio subscription services should receive equal treatment – not
preferred treatment – under the copyright law’s compulsory licensing system.
Compulsory licensing may be a less-than-ideal alternative to a truly free
market system. But mandating special low rates under the Section 801(b)
standard for satellite radio subscription services is unjustifiable. At the
very least, the licensing rates should seek to approximate free market values. Thus,
satellite radio subscription services should be subject to the same "willing
buyer/willing seller standard" that governs other music delivery services.

Third, the
copyright royalty exemption for broadcast radio should be eliminated. Broadcast
radio should be treated
like other music delivery services instead of given a free pass to play
copyrighted sound recordings. Like other services, if broadcast radio stations
wish to air copyrighted sound recordings, they should bargain for performance rights
to do so – or short of that, pay royalties according to the "willing
buyer/willing seller" rate standard.

One doesn't have
to side with YouTube, satellite and Internet radio, broadcast radio stations, recording
companies, music artists or other copyright holders to recognize that existing
copyright law is distorting free market negotiations for delivering music
content. Copyright law must be modernized to match the 21st century world of high-speed
broadband and ubiquitous Internet user-upload services. Equal treatment of
music delivery platforms and more effective tools to combat infringement are
essential to putting copyright on a firmer free market-oriented footing.